Browsing by Subject "disagreements"

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    Managerial Beliefs and Incentive Policies
    (Elsevier, 2015-11) Kim, Jaesoo; Department of Economics, School of Liberal Arts
    This article examines incentive contracts under moral hazard when a principal and agents disagree about the likelihood that a task will succeed. The direction of disagreement alters the effectiveness of monetary incentives. The principal's optimal contract is a relative performance evaluation when she is more optimistic than the agents, and a joint performance evaluation when she is less optimistic. We further show why disagreement may prevail in organizations by considering a simple job assignment problem.